A few years from now, a US executive flying into Saudi Arabia could get off an airline founded by his sovereign wealth fund and order an Uber, a company in which the same fund holds a 4% stake. Across the capital, executives can check out a boutique hotel in a former palace, which is also owned by the Public Investment Fund.
Attending PIF’s annual convention, they could sip farm coffee through a venture led by the fund, then sign a deal with a defense firm owned by PIF. That evening, the executive can catch dinner and a movie at a complex developed by its entertainment arm, flying home without touching a single business associated with PIF.
As Crown Prince Mohammed bin Salman races to diversify Saudi Arabia’s oil-dependent economy, the $620 billion PIF – which he chairs – is taking center stage, the most powerful in a rapidly changing economy. To become one of the institutions a genealogy practitioner is replacing the class.
Ridingen is the conservative Islamic kingdom of old, which lived off its oil revenues, while carefully investing in secure American treasuries and distributing lucrative state contracts. This Saudi Inc. and its self-styled founders are tearing up the rule book.
In the span of five years, PIF has become a major international investor, ditching US blue chips like Uber and investing in electric cars. It has also forayed into sports, buying UK soccer team Newcastle United and investing $200 million in an international golf venture.
It is given the MBS, as the de facto ruler is known, more clout on the international stage, with Western officials trying to help the world’s largest oil exporter quell inflation and pumping the petrodollar into a pulsating world economy. given to help. US President Joe Biden will visit Riyadh in mid-July, forced to reconsider his promise to turn MBS into a “pariah” in the 2018 murder of Washington Post columnist Jamal Khashoggi.
But it is at home that the PIF made the greatest impact, replacing the economy with its own brand of state capitalism. PIF aims to invest at least $40 billion per year in Saudi Arabia and has already created 54 new companies, branching out into sectors ranging from real estate to luxury cruises.
Critics say it is part of a wider accumulation of power that Prince Mohammed, 36, has seen while controlling oil policy, security, domestic and foreign affairs, jailing critics and silencing independent voices. Saudi officials also expressed concern, initially saying they were crowded out by an institution that is so rich and connected that few can compete.
“The MBS doesn’t care too much about the legacy structures of the Saudi state or Saudi business and wants to create a new Saudi Arabia,” said Stephen Hertog, an associate professor at the London School of Economics. PIF) and turned it into the main vehicle for its diversification strategy, excluding most of the established government and the more clearly established private sector.”
Established in 1971 as part of the Ministry of Finance, PIF was initially charged with providing loans to grow the economy and owned a significant percentage of the Saudi stock market, but was little known overseas.
Then, in March 2015, the fund was “reborn”, its website announced, and placed under MBS.
Among the thousands of princes who settled their rare world, MBS saw himself as a disruptor. When his father became king at just 29 years old, he looked to tech entrepreneurs like Steve Jobs and Mark Zuckerberg as role models, he told Bloomberg in 2016. “If I do according to their ways, what will I make?” He said time.
As the prince began vigorously expanding his authority, the PIF became an important tool, allowing him to run the new Saudi Arabia more like a tech startup than a slow-moving bureaucracy.
He recruited Saudi banker Yasser al-Rumayun as governor. A year later, when he launched his Vision 2030 to transform the Saudi economy and end its dependence on oil, PIF was at the fore. MBS said it would have more than $2 trillion in assets by 2030, making it the world’s largest sovereign wealth fund.
Since 2017 – when MBS pushed an older cousin to succeed the throne – PIF has doubled in size, partly due to transfers from the central bank and the IPO of a stake in state oil giant Aramco.
In the process, it has increasingly come to dominate former power centers such as the Ministry of Finance, the Ministry of the Economy and the central bank to become the country’s main growth engine.
That expansion has gained wings among the business elite.
Saudi Arabia has been a monarchy since its inception, but a decade ago power was more decentralized and important merchants enjoyed influence of their own.
That old business class was dealt a devastating blow in 2017, when Prince Mohammed launched a controversial anti-corruption campaign that detained dozens of royals, businessmen and former officials at Riyadh’s Ritz-Carlton hotel. Most were accused of unwanted transactions, pressured to hand over assets, released and banned from traveling abroad.
Prince Alwaleed bin Talal, long counted among the world’s richest men, was removed from Forbes’ billionaire list in 2018 because of a lack of transparency over what happened to his wealth. Once a glamorous jetsetter, he hasn’t left the area since breaking free from the Ritz, though he told Bloomberg soon after that he didn’t have any hard feelings. PIF had bought a 16.87% stake in their Kingdom Holding in May.
A skyscraper he was building – once envisioned as the world’s tallest – appears to have stalled, its partially finished husk a reminder that priorities have shifted under MBS, Who has launched new megaprojects through PIF. The most ambitious of them all is Neom, the futuristic new city he is building on the Red Sea.
While a new elite has risen, including al-Rumayyan, it also lacks the limited freedom of the old, all due to MBS and largely going on in lockstep with him.
Saudi officials “want to create a sense of capitalism among the population, but they don’t want a strong, independent private sector,” said Andrew Leber, a Harvard University researcher who focuses on political economy in the Middle East. “There’s more sense in, what do we really need the private sector for? If we can invest directly in specialized companies, why do we need to bargain with these old family firms?”
The top-down approach is not new for Saudi Arabia, where family businesses have relied on lucrative government contracts for decades. When MBS unveiled Vision 2030, he called for a market-driven transformation, an idea emphasized by management consultants and investment bankers who became lead advisors. Since then, Saudi Arabia has implemented capital market reforms, removed barriers to foreign investment and began privatizing state enterprises. But this is PIF behind the wheel.
Concerns were raised in early 2018, when Kuwaiti retail billionaire Mohamed Alshaya confronted Saudi ministers during a panel in Davos and asked whether they were encouraging or competing with private businesses.
In fact, professionals are leaving the private sector in large numbers to join PIFs and related firms with a package they can’t match.
When asked about PIF’s approach, a spokesperson said in a written response: “It’s about developing areas that are not active today, developing ways of doing business that are not active today. PIF is about to change that.” enabling and supporting the private sector to
A Saudi executive who spoke on condition of anonymity in a country where even mild criticism is not tolerated said he was initially concerned, even in anger, such as PIF expanded, splitting around the billions of dollars he couldn’t dream of matching.
But he has since turned a believer, saying that the fund ushered in an economy that had become exploited and a system that was not fit for a digital and globalized world.
Sitting by the pool of his modernist Riyadh villa, the executive compared the past few years to a “tsunami ride”, saying he would have to manage his own business more aggressively, but had adapted and survived.
In Davos in 2018, Finance Minister Mohamed al-Jadaan responded to Alshaya by saying that the fund was creating an ecosystem for the private sector to join.
“What the government is doing is looking at sectors, industries, specific investments that are either too large, or new, for the private sector to take the risk,” he said.
Several US electric carmakers point to PIF’s purchase of a controlling stake in Lucid Motors as an example of how it is incubating non-oil industries that would not otherwise get off the ground. Saudi Arabia struggled for years to persuade automobile makers to open facilities in the country, but Lucid signed a deal to do so in February, potentially paving a way for others.
PIF said in an emailed statement that it was acting as a “cornerstone investor” to enable and “crowd-in” the private sector. The fund said it was investing in 13 sectors that were identified as having the potential to deliver a competitive advantage regionally and globally, generate returns, localize jobs and accelerate the transfer of knowledge across the state. Bring it
The state played a key role in building economies around the world, including powerhouses such as China and South Korea. But both began their industrialization as low-income societies, with large populations and cheap local labor, economists say. Saudi Arabia is already a middle to high-income country, and has no precedent for rebuilding an oil-dependent economy while maintaining a standard of living.
“It’s great as a force for change, as a force for incubation,” said Karen Young, a senior fellow at the Middle East Institute in Washington, “The question is: When do you back off?”